ANNE ASHWORTH: Wake-up call for bright ESG funds as more UK investors cash out

The global ESG fund industry is expected to be worth up to £42 trillion by 2025.

Against this backdrop, figures showing four consecutive months of deductions from such funds in the UK that prioritize environmental, social and governance criteria seem like a blip.

But that’s not the case. It’s a wake-up call that deserves attention now, even if it may not rival the noise and fury of America’s culture wars over “wake” investments.

Elon Musk thinks ESG is “the devil”. Florida Gov. Ron DeSantis is also unenthusiastic.

Even BlackRock CEO Larry Fink, ESG’s most vocal advocate, now prefers to avoid the ESG term, considering it a “weapon form.”

Concerns: Figures show that the UK has withdrawn ESG funds that prioritize environmental, social and governance criteria for four consecutive months

UK investors, who have cashed in on nearly £2bn of ESG fund holdings since May, have expressed their dissatisfaction through their withdrawals.

Some of this dissatisfaction is centered on the stocks deemed appropriate. The selection method is not consistent and can be bizarre at times.

In 2020, it emerged that some funds had stakes in Boohoo, apparently believing they could inspire a fast-fashion company to become virtuous.

Defense contractors are excluded, despite the role of companies like BAE in the Ukraine war.

For what is more ethical than defending democracy? The anti-armament stance has also had a negative impact on fund returns.

Another problem is that the funds do not emphasize the “G” part of ESG, when higher standards of governance should lead to better overall corporate citizens.

The cost of paying too little attention to governance is illustrated by the damage done to NatWest, which lost Dame Alison Rose, its chief executive, when Nigel Farage’s bank account was disclosed to a journalist.

Chairman Sir Howard Davies will follow suit. They seemed to forget that financial services governance is based on trust. The FCA has postponed its proposed and much-needed ESG labeling rules until the end of the year.

Until then, ESG funds may continue to pull out as investors feel they are being greenwashed.

The mid-range favourite

B&M is the secret meeting point of the bargain-loving middle class. After a visit to a nearby Lidl, they visit one of the 707 branches, most of which are located in retail parks with ample parking spaces.

They leave B&M with something for their pet and other items for the home.

This discount store excels at encouraging you to buy. After taking over 51 of the 400 stores left empty by Wilko, the retail victim of the summer, his talents are now being put to the test.

Wilko stores are mostly located on high streets, which means B&M needs to attract a new clientele – those who walk or take the bus to the stores.

This means that B&M’s merchandising department in the Far East – which orders directly from the manufacturers – has to produce ranges that attract these buyers.

B&M shares fell to 547.8p on news of the Wilko store deal. Still, some analysts believe B&M’s Flair is targeting a price of 680p. B&M’s progress at this level will be interesting.

But it won’t be as compelling as the detailed account – which I think we owe – on how Wilko failed amid a cost-of-living crisis and the role played by restructuring specialist Hilco, the retailer’s key secured creditor.

Will Wilko be the bargain of the year for Hilco? Pretty sure.

arm wrestling

By now, we should be less bitter at the news that Arm, the Cambridge-based semiconductor company, will go public in New York instead of London, and that US tech giants like Apple and Nvidia will be the “cornerstone” investors. UK shareholders will have to wait their turn.

But the announcement that Arm shares will be valued at between $47 and $51 has reminded us of the shortcomings of the UK stock market, which has been deemed unworthy for a variety of reasons, including the lukewarm welcome it gives to tech stocks.

The Americanization of Arm will reignite debate over the higher valuations that fund managers say Wall Street would bestow on some other UK players.

For example, what multiplier would you give Ashtead, the equipment supplier, since it derives 85 percent of its sales and 90 percent of its profits from its American Sunbelt operation?